An IRS tax audit is a review or examination of an organization’s or individual’s accounts and financial information. The purpose is to ensure that information is reported correctly according to tax laws and to verify that the correct amount of tax has been paid. Here’s a brief explanation of what an IRS audit involves:
Types of IRS Audits:
- Adjustment Letters: These are not audits but notifications of changes to your refund amount or additional money owed, usually due to a miscalculation.
- Correspondence Audits: The IRS requests additional documentation to support items on your tax return, such as receipts or employment documents.
- Examination Audits: These are more in-depth and may involve a face-to-face meeting at an IRS office or the taxpayer’s location.
Reasons for Being Audited:
- Random Selection: Using statistical formulas, some returns are chosen randomly for audits.
- Computer Screening: Returns may also be selected for unusual deductions or income reported.
- Related Examinations: If your return involves transactions with others who are being audited, your return might be selected too.
Audit Process:
- You will be notified by mail if your account is selected for an audit.
- The audit can be conducted by mail (for simpler issues) or through an in-person interview (for more complex situations).
- After the audit, the auditor will determine any additional taxes, penalties, or adjustments.
- If you disagree with the audit findings, there is an appeals process.
Remember, being selected for an audit does not always suggest there’s a problem. It’s important to keep good records and seek professional advice if you’re unsure about the process.
For more detailed information, you can visit the official IRS website or consult tax professionals.
References
- irs.gov
- taxfoundation.org
- turbotax.intuit.com
- nerdwallet.com
By, Nesar Uddin, CPA, CFSA and Abdullah Noman, PhD, CFP